US corporate political donations: What to be aware of

Given the controversy following the Biden-Trump Presidential Debate, now serves as good a time as any to discuss corporate risks involving corporate donations to any political party, campaign, or political action committee (“PAC”).

This is especially true as radicalism, nationalism, protectionism, and populism are higher risks globally given the elections and changes in government this year.

The Federal Election Commission has strict rules in how a corporate entity can donate to US political campaigns. Corporate donations are often through a PAC or Super PAC which may have specific political aims or affiliations.

In Citizens United v. Federal Election Commission, the Supreme Court recognized that U.S. citizen-shareholders of corporations could exercise their First Amendment rights through the corporate entity’s political donations.

It should be noted, however, that this corporate political empowerment was intended to be for the shareholders, not necessarily the Board members as Justice Kennedy recognized this as a “procedure for corporate democracy.”

According to the Campaign Legal Center, total election spending in 2020 was $14.4 billion (2018: $5.7 billion) in which more than $1 billion was from groups with undisclosed and unidentified donors contributing “dark money” to super PACs.

Companies should take note though that certain states and local governments have rules further preventing companies with as little as 1% of foreign shareholders from donating to political campaigns as this may be construed as “foreign influenced”.

Corporations seeking to make donations should discuss this with their compliance officers and counsel in order to adequately scope applicable legal and reputational risks.

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